01 October 2019 by Ben Harber and Shaun Zulafqar
This month we are looking at the key steps and points to remember when incorporating a new company
There are several ways to form a company:
online: either through a formation agent or Companies House via their online web incorporation service
post: completing a hard copy form and sending this to Companies House. This method is usually more expensive but is however the best option for incorporating nonstandard companies, such as those limited by guarantee.
The first task is to check the index of names at Companies House to make sure the name you want is available. You can use the Companies House name availability checker on their website.
There are quite strict limitations on using names which are too similar to those already in use although there is an exception if an existing company is part of the same group as the new one and consents to the use of the proposed name. Certain words and expressions need prior permission before they can be used, so it is also worth checking the Companies House guidance on names
before you begin to avoid the submission being rejected.
This may be private or public, limited or unlimited, limited by shares or by guarantee. There are also limited liability partnerships and other types of entity, such as community interest companies. Sometimes it is clear which type of entity is required but if in doubt, professional advice should be sought.
It is no longer necessary for a company to have ‘objects’ – a list of activities which it is permitted to undertake and for most commercial companies it is easier to now not to have these. However, some companies such as charities, who are required to have them, may benefit and they should be included in the articles of association.
Each company will need to select a Standard Industrial Classification code ‘SIC code’. These are used by Companies House to classify the type of economic activity in which a company or other type of business is engaged. This information must be provided by all companies at the time of company formation, regardless of whether the business will be active or dormant.
The Office for National Statistics (as well as a number of other government authorities) use these codes to collate important data about the various types of businesses operating and trading within the UK.
It is often quicker and easier to incorporate a company with standard model articles of association and then adopt tailored ones afterwards if required. Formation agents may use the model articles or they may have their own standard version, which are slightly adapted. The model articles are available from Companies House on their website.
This may be in England, Wales, Scotland or Northern Ireland for UK registered companies. Once the country is chosen it cannot be changed, although the registered office address may be altered at any time. The address of the registered office must be settled before a company can be incorporated and must be in the jurisdiction of incorporation.
The first directors and any company secretary will need to be included on the application once they have given their consent to act. Private companies need only have one director (unless the articles say otherwise) and public companies must have at least two directors. There are restrictions on who can serve as a director.
An individual has to be at least 16 years of age and undischarged bankrupts are not permitted to be directors. At present, every company must have at least one natural person on the board (as opposed to corporate directors). Whereas public limited companies must have a company secretary this is optional for private limited companies.
Directors must supply their home address with the details to be submitted to Companies House. However, this will not be put on the public record providing they have submitted a service address. The service address can be any address, including the registered office address for use by third parties to contact the directors about company matters.
Whilst it is possible to have several different classes of shares, as with the constitution it is often easier to form a company with the minimum number of ordinary shares and then make any adjustments subsequently. The nominal or par value must also be agreed.
A Public Limited Company must have an issued share capital of at least £50,000, of which at least 25% of the nominal value and the whole of any share premium must be paid up when the company
The initial shareholders are referred to as the subscribers in a company limited by shares, or the first guarantors in a company limited by guarantee.
On incorporation there may be someone or a relevant legal entity who will count as a person with significant control by satisfying any of the four conditions set out below:
condition 1: directly or indirectly holds more than 25% of the company’s issued share capital
condition 2: directly or indirectly
holds more than 25% of the company’s voting rights
condition 3: directly or indirectly holds the right to appoint or remove a majority of the board of directors
condition 4: has the right to exercise, or actually exercises, significant influence or control of the company, LLP or SE
condition 5: has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself satisfy any of the first four conditions if it were an individual.
The company may now agree to allow certain information to be kept on the public register rather than keeping their own.
Once all the steps above have been followed, the completed form and documents can be submitted either electronically or on paper as outlined above. The Companies House fee to incorporate a company electronically is £13 and applications are usually processed within 24 hours.
The cost is £30 for the same day service although documents have to be submitted to Companies House by 3pm. To incorporate using hard copy forms the cost is higher at £40 for the standard service which can take up to five days or £100 for the same day service.